Air India’s Fuel Supply Could Be Cut Off Again

Beleaguered Air India faces a threat of fuel stoppages in a week’s time. Three of India’s largest fuel companies have given the carrier until October 18th to pay accrued debts.

Air India jet landing
AI’s debt a concern of suppliers and the government. Photo: Alan Wilson via Wikimedia

Writes Business Traveller, Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation are yet to receive monies for fuel supplied. Air India’s debt to the three amounts to around ₹5,000 crore ($705 million).

It is not the first time Air India has been threatened with sanctions due to unpaid bills. In September, state-owned fuel companies threatened to cut off supplies to the cash-strapped national carrier at Hyderabad and Raipur. Prior to that, in August fuel was cut to six airports serviced by Air India.

Despite making daily payments for fuel, Air India cannot clear its invoices. Eight months’ worth of fuel debt remains outstanding and things only appear to be getting worse. If dues remain outstanding by October 18th, the taps will be turned off once more.

We have written to Air India but have not yet received a reply.

Concerns raised

Fuel companies have expressed “concerns” about the level of debt accrued by the state-owned carrier. But Air India is unlikely to be able to afford the repayments prior to the October deadline.

Air India jet taking off
Air India once again threatened with a fuel stoppage for non-payment of debt. Photo: Flickr via Wikimedia

The airline is currently getting by on ₹30,000 crore of taxpayers’ money. It finally acknowledged in April 2012 that its financial well-being was beyond succor. Losses year-on-year of around ₹8,000 crore are bolstering the carrier’s ₹58,000 crore ($8.1Bn) of general debt.

Deadline extended

On October 4th, oil retailers demanded payment of the debt owed. If the debt was not paid by the 11th, the supply of fuel would stop. Following a request by Air India to go easy, the companies agreed to extend the deadline to the 18th.

Writes The Economic Times, a letter sent to Air India from oil companies read, “In the event on non-receipt of monthly lump sum payment, as has been agreed in the meetings held on 26/08/2019 and 04/09/2019, OMCs will be constrained to stop fuel supplies at six major airports effective October 11, 2019.”

The retailers’ threat is not a hollow one. The stoppage of fuel last month at six airports (Kochi, Mohali, Pune, Patna, Ranchi and Vizag) was a show of intention.

Air India troubles

Of the Indian government’s attempt at a turnaround plan for Air India in 2012, ₹30,000 was promised to the airline to be drip fed to aid its recovery over the course of nine years. According to Times of India, this was in addition to a previous bail out of ₹3,200.

Air India on taxiway at dusk
A turnaround plan which saw heavy investment has since failed to rescue Air India. Photo: Sean D Silva via Wikimedia

However, the injection of cash seems to do have done little to turn around the carrier which now teeters on the edge of insolvency. As is the Government’s want, last year it invited expressions of interest (EoIs) from companies wishing to buy into Air India to salvage its fortunes.

Divestment

However, the Government failed to attract necessary interest due in part to its insistence that it would retain a 24% controlling stake. This year sees another attempt to sell Air India, albeit in its entirety. The Government’s divesting its stake is a key addition to the small print.

Reports Live Mint, a ministry official said, “The expression of interest document for Air India will be put out anytime now, at least before the end of this month.

“The plan is to sell 100% stake in the airline. The proposal needs clearance from a ministerial panel before it is made public.”

Privatization appears to be the only option available to Air India’s owners. But it remains to be seen whether in its present guise it will be able to fulfill its obligations to the oil retailers. If not, and if the Government refuses a final bailout, the company could lie dormant until the new owners hold the key to the door.

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